33 states out of money to fund jobless benefits

This article deals with the welfare of the unemployed people during this recession. Jobless benefits funds have been drained in majority of states. These states have to borrow billions from the federal government to help out-of-work Americans.

A total of 33 states and the Virgin Islands have depleted their funds and borrowed more than $38.7 billion to provide a safety net, according to a report released Thursday by the National Employment Law Project. Four others are at the brink of insolvency.

Debt-challenged California has borrowed the most, totaling more than $8.4 billion, followed by Michigan and New York, which have loans worth more than $3 billion. Nine other states have borrowed at least $1 billion from the federal government.

"The nation's financing system for jobless benefits is under unprecedented stress," said Andrew Stettner, deputy director of the New York-based advocacy group for the unemployed. "While the recession has certainly made things worse, this funding crisis has been developing for years."

At the onset of the recession, only 19 states met the recommended funding level, which is one year of reserves equal to the highest amount of unemployment insurance paid out during prior recessions.

Financing experts suggest that states build up their jobless benefit coffers during strong economic times so that they can draw from them during downturns.

To fix deficit, Congress needs the will to cut

commission is supposed to examine policies to meaningfully improve the long-term fiscal outlook. It is analyzed that if the commission will make credible recommendations for these goals, it will have to establish deficit reduction as the primary goal; namely initiate substantial spending cuts or tax increases.

In the rest of this article, the author analyses this issue from both sides; he points that if the political polices are just for solving a short-run economic problems brought by the health care reform, these polices will never reach the goal. However, these policies would be insisted and carried out in a moderate level, it would bring benefits in the future. And he points out a feasible way to carry these policies is to have the commission and the public recognize that deficit reduction has itself become a “moral imperative.”

China and the yuan: What's at stake

This article is about the tension going on between US and China about the valuation of Chinese Yuan. U.S. Treasury Secretary Timothy Geithner's surprise visit to China this week hinted people of an agreement that China and US about the valuation of yuan. If there is an agreement, experts believe the exchange rate of Yuan will go up 2-3% immediately and 7% every year. This puts Chinese markets for goods in jeopardy becuase this will make their goods more expensive to global buyers and expose to worldwide competition. In many goods sector China had the monopoly becuase they had the least manufacturing cost with very hi-tech backward linkage. Now what we have to look for is how China manages to compete with other global players when it's currency appreciates and it doesn't get the advantage it used to have. This is I think quite similar to what happened when US lifted the quota system from the garments imported to the United States. Many other countries profited from that. Though it's a different issue but the truth is China if it is to keep up it's export and compete with other countries it has to keep it's currency exchange rate low.

China Sees First Trade Deficit in Years

China Sees First Trade Deficit in Years
By KEITH BRADSHER

HONG KONG — China announced on Saturday that it had a trade deficit of $7.24 billion last month, its first monthly trade deficit in nearly six years, as imports jumped along with a surging domestic economy while exports grew more modestly.

Chinese New Year came late this year, falling on Feb. 14, which hurt factory production on the coast in early March. Many migrant workers travel home for two weeks for the celebration, and they were slow to return to their coastal plants in large numbers because there are now many jobs available in construction, retailing and other industries in the country’s interior.

According to the official Xinhua news agency, China’s General Administration of Customs said the March reading was the first trade deficit since April 2004. China had a trade surplus of $7.6 billion in February and $14.2 billion in January.

Top commerce ministry officials in Beijing had warned repeatedly over the last three weeks that China would run a trade deficit in March. They cited the risk of a monthly deficit as part of their broader campaign to prevent the government from letting the country’s currency, known as the renminbi or yuan, rise against the dollar and other foreign currencies.

After letting the renminbi appreciate gradually against the dollar from 2005 to 2008, the government has kept the renminbi at about 6.83 to the dollar since July 2008, spending hundreds of billions of dollars on currency market intervention to prevent it from appreciating. The weakness of the renminbi has helped China capture a rising share of export markets in the United States, the European Union and elsewhere during the global downturn.

But the commerce ministry has lost its battle to preserve the renminbi’s informal peg to the dollar and the Chinese government will soon adopt a new currency policy, including a small rise in the renminbi against the dollar and wider day-to-day variation in the currency’s value, people familiar with the emerging consensus in Beijing said on Thursday and Friday.

These people, who insisted on anonymity because of the diplomatic and financial sensitivity of the issue, said that China would shift its currency policy in the coming days. But investment bank economists were generally skeptical on Friday, saying that any change would take weeks, not days.

The March deficit was much larger than the consensus estimate of Western economists, who had been anticipating a deficit of less than $1 billion. Chinese officials have long been wary of trade deficits, after monthly deficits in 1993 and early 1994 depleted the country’s foreign exchange reserves.

But after accumulating $2.4 trillion in foreign exchange reserves, trade deficits have become less of a monetary policy issue. Commerce ministry officials have warned, however, that if trade deficits reflect weak overseas demand and exports stumble, then layoffs at export factories could eventually increase unemployment and hurt social stability.

The Well-Off Are Spending Again — but Carefully

This is good news to hear, that the wealthy are starting to spend their money again. This could be the beginning of a recovery? Some experts contend that much of the high-end spending before the recession was fueled by money borrowed by people who were trying to live beyond their means. Today there is a trend to reducing risk by cutting debt. But even people who came out of the financial crisis relatively unscathed are pulling back. The possibility of losing their wealth has become more real.

Kohn Says Economy Operating "Well Below" Potential

This article is about the observations and predictions of the Federal Reserve Vice Chair, Donald Kohn. First of all, he says that interest rates are likely to stay low for an longer period of time; however, rates will have to be raised eventually. The key is when and how fast rates should rise, because there is a great fear of large inflation. Kohn believes that the economy is not being as productive as it could, given the unemployment rate, low prices, decreasing wages, and unused capacity. The way to achieve this higher productivity is through government/fiscal policy, and their ability to lower the debt volume.
I think that since expected inflation leads to higher interest rates, the case may be that interest rates will rise anyways. Also, I agree that the overall confidence of consumers and business is hampering the productivity. The government may have to keep trying to provide incentives to invest and produce more.

No loans! Major colleges pledge aid without debt

Given the increasing costs of education these days I found this article to be a bit refreshing. When you think of Ivy Leagues, you think highly selective, expensive institutions. However, they actually cost less than what most people think. These prestigious schools have huge endowments that they are able to give out hundreds of millions or billions of dollars of aid each year. The best part is that many of these schools limit or remove loans completely from their financial aid packages. Harvard, for example, costs over $50,000 a year, yet the average financial aid package is around $40,000.

China and the yuan: What's at stake

This article discusses the plan to boost the value of the yuan in order to make U.S. goods more competitive versus Chinese exports. This could bring a 2-3% rise in the yuan. The yuan may be undervalued anywhere from 15-40% and a more significant rise may be needed to help the undervaluation. A slow adjustment is necessary, otherwise comes the risk of inflating an asset bubble in China. A boom and a bust could lead to another global recession. Of course, there are risks of having a stronger yuan. A higher yuan means Chinese products will be more expensive for U.S. consumers. It could also mean higher interest rates and higher borrowing rates for U.S. homeowners and businesses.

Wholesale Inventories, Sales in U.S. Rose in February

We have recently learned about some leading economic indicators, which are variables that tend to fluctuate prior to the overall economy. While several economists are still quite pessimistic about this year economic prospect, it is interesting to see that these indicators, as being pointed out in the article, all indicate that our economy is experiencing strong recovery.

Inventories at U.S. wholesalers rose in February, a sign companies are ramping up orders as sales climbed to the highest level in more than a year. Sales increased by 0.8 percent, the eleventh consecutive rise. Many recent reports suggest that the replenishment of depleted stockpiles will lift production in the coming months. Moreover, stock prices rose on the mounting sign of economic expansion that began in mid-2009 will be sustained.

Oil prices plummet after jobless claims

This article states that the price of crude oil has been decreasing since unemployment claims in Europe are unstable, thus showing little improvement in the economy. On the other hand, oil companies have had increased inventories than what they need, therefore, this is another reason for lowered prices. While the US dollar has been getting stronger and the oil is backed by our green, therefore, oil is getting expensive for foreigners. All this leads to a lower price for oil.
Overall message from this article, the economy is still not recovering to go back to "normal" prices.